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Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
The writer is the managing director of the frontline analysts and author of the non -contact machine
The world’s bank supervisors are, through speeches and letters of “dear CEO”, warning their positions for the need to prepare for a high geopolitical risk. This could be a mere projection of irony or subconscious, but financial regulation has its own geopolitical problems, possibly more serious than anything in front of the banks themselves.
Consider the call Basel III EndgameThe last stage of regulatory reforms after the crisis for banks. This was agreed in 2017 and initially intended to be implemented since the beginning of 2022. The current state of the game is that the EU has delayed some of the key points by 2026, the United Kingdom has delayed everything at 2027 and the United States does not even have a complete proposal. With the appointment of Michelle Bowman, an earlier criticism of the final game, for the position of vice president of the Federal Reserve for Supervision, and the most recent discourse of the Treasury Secretary, Scott Besent, apparently rejected the entire principle of Basilea standards, there must be doubts about whether the complete agreement will ever be implemented in the global world. Whatever happens later in American politics, bank lobbyists are very efficient: the end of the game was already delayed and diluted under the Biden administration.
Uncertainty about global cooperation is beginning to spread. It is remarkable that the Financial Stability Board, which once led the way on climate risk, cybernetic risk and shade banking, will spend 2025 working on a review of its own processes as its main delivery. The Banking Basel Supervision Committee itself will respond this year to the collapses of Silicon Valley Bank and Credit Suisse in 2023 through the development of “tools” and perhaps some principles for the “effective supervision trial”, instead of any new regulation.
It may be time for regulators to face the possibility that without leadership, or at least cooperation, the US, the global standard establishment processes do not work. Regulatory standards for international banks are cumbersome, complicated and need a review. But in the current climate, they will not get one. In fact, the only review of this type that has been carried out, on the regulation of market risk, seems to have been the less popular final game. If the Basel system no longer works, what then?
Banking regulation has been an anomaly in the global governance system. In addition to the law of the sea, no other industry, not even other finance sectors, such as insurance or values, has only a set of regulatory standards. The accounting profession is carried out with the coexistence of the US GAAP and IFRS standards. Why are banks so special?
The Basel Committee is a rarity. It is based on the Bank of International Agreements, which was established after the First World War to supervise the repairs of Germany and has passed the next century becoming useful enough to never be closed. The United States has four seats and the EU is comically overrepresented with 12 seats for Member States plus the European Central Bank. The United Kingdom and Switzerland have two seats each. The Committee acts by consensus instead of majority vote, which means that discussions can carry eternity. The group has only remained united during the last five decades because it is a very close network of central bankers that share a common understanding of the world.
Therefore, it is worth looking back in history to see what we expected to win from world banking standards. The first document published by the Basel Committee was the “Concordat“, An initial statement that describes the principle of cooperation between household jurisdictions and hosts for the international offices of the banks in 1975. It was not until 13 years after someone felt the need for the first”Capital Agreement“, Establish the definitions of bank capital and the proportions we know and love today.
But the purpose at that time was to ensure that problems in a market, such as the Latin American debt crisis or the Japanese real estate bubble, did not extend all over the world. The dream of a perfectly level global playing field came later. The Basel system has grown because success generates success.
The central bankers, unlike almost all other bureaucrats, had such good relations that they felt able to continue acting as a source of unified government. If that era of frictionless international finances has come to an end, then bank regulation may need to return to the local approach. Paradoxically, that will probably mean more regulatory load, no less, since everyone will have to satisfy local standards everywhere.